Pacific Investment Management Co.’s Bill Gross said the Federal Reserve will continue its accommodative monetary policies even with the U.S. economy adding more jobs than forecast last month.
“Whether or not the Fed itself will view 7.9 percent unemployment as all clear signal, I’m sure they won’t,” Gross, manager of the world’s biggest bond fund, said in a radio interview on “Bloomberg Surveillance” with Tom Keene. “You adapt by assuming they’ll continue to be dovish.”
In the last jobs report before next week’s election, a net 171,000 workers were added to payrolls after a 148,000 gain in September that was more than first estimated, Labor Department figures showed today in Washington. The median forecast of 91 economists surveyed by Bloomberg called for an advance of 125,000. The jobless rate rose to 7.9 percent from 7.8 percent as more people entered the labor force.
“There seems to be nothing the Fed can do but continue down this road until certain conditions are met,” Gross said. “What are those numbers? Perhaps we’re going to hear more about them in the December meeting, in terms of what their objectives are.”
The $281 billion Total Return Fund (PTTRX:US) managed by Gross has returned 10 percent in the past year, beating 94 percent of its peers, according to data compiled by Bloomberg. It gained 0.28 percent over the past month, beating 65 percent of its peers. The firm manages $1.92 trillion in assets as of Sept. 30.
“We made a bet basically on reflation as opposed to deflation,” Gross said. “A reflationary bet suggests that if own Treasuries, and we own a lot of them, that you own TIPS as opposed to nominal Treasuries. We also owned a lot of mortgages hoping that the Fed would QE3 and buy them up.”
The Fed in September announced a third round of so-called quantitative easing, or QE3, which involves $40 billion in monthly purchases of mortgage-backed bonds. Treasury Inflation Protected Securities, or TIPS, have gained 7.3 percent this year, compared with 1.9 percent for the overall Treasury market, according to Bank of America Merrill Lynch index data. Mortgages have gained 2.6 percent in that span, index data show.
Gross said his firm has bought Spanish and Italian bonds, on speculation that the European Central Bank President Mario Draghi will “come to the rescue on his white horse.”
“We think that’s going to happen,” Gross said.
Republican presidential nominee Mitt Romney has said he disagrees with the Fed’s measures to stimulate the economy and would replace Chairman Ben S. Bernanke. A new chairman would be unable to immediately reverse the Fed’s unprecedented easing, Pimco Chief Executive Officer Mohamed El-Erian said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu.
“You can’t walk back at this stage,” said El-Erian, who is also the co-chief investment officer at Pimco. “The best you can do is slow it and try to deal with the collateral damage. If you try to walk back too quickly, then the likelihood is that this country ends up in recession.”
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